A Major Bank Is Offering Payday-Style Loans. Will Others Follow Suit?

By James Rufus Koren
Los Angeles Times

WWR Article Summary (tl;dr) Though some advocacy groups have pushed for banks to offer these types of loans, others worry that U.S. Bank’s new offering is still too expensive and could prove unaffordable for many customers.

Los Angeles Times

U.S. Bank says it will offer nearly instant small loans to its customers, becoming the first bank to provide such a product since federal regulators cleared the way earlier this year amid continuing concerns over the costs of payday loans.

The Minneapolis institution, the nation’s fifth-largest commercial bank, said its checking account holders will be able to quickly borrow $100 to $1,000, enough to cover many emergency expenses, through its Simple Loan offering. Borrowers have three months to repay, at a cost of $12 for every $100 borrowed, equivalent to an annual interest rate of about 71 percent.

The bank acknowledges that’s expensive, calling the loans “high cost” on its website, but they’re dramatically cheaper than payday loans, which give borrowers less time to repay and come with interest rates that often top 400 percent.

In many cases, these loans also could be a better deal than bank overdraft charges, which, viewed as short-term loans, can have effective interest rates running into the thousands of percent.

Customers who need cash fast “can solve that need with many options, it could be a credit card or credit card advance, or it could be a payday loan,” said Lynn Heitman, an executive vice president at U.S. Bank, which has more than 3,000 branches in 26 states. “We believe this product fits in the middle of that spectrum.”
By contrast, credit card advances for people whose credit lines are not maxed out might carry interest rates of 25 percent or more and come with a small fee.

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